Index CFD

A contract for difference whose reference price is an index level rather than the price of a tradeable thing. Because the index is a calculation, nothing exists to deliver, and a cash settled contract is one of the few ways a position can be taken on the calculation itself. Two conventions are in use. A cash or spot index has no expiry and is quoted around the current level, so a position held overnight carries a financing adjustment and a dividend adjustment applies as constituents go ex-dividend. The alternative is priced from a listed future, expires with it, and is rolled from one delivery month to the next.

Size is stated as a money amount per index point, so the result on a position is the number of points the level moved multiplied by the value of a point multiplied by the number of contracts, converted into the account currency if the index is quoted in another. The full contract value is the level multiplied by the value of a point, and it is that value, not the amount deposited against it, that profit and loss are calculated on. Losses are therefore not limited to the amount deposited.

The mismatch of hours is the detail that surprises people. A provider commonly quotes an index contract for far longer than the exchange where its constituents trade, so the level can move for hours while none of the underlying shares is trading, priced instead from the related future and from whatever else is open. A related point is that an index has no dividends of its own while its constituents do, which is why a cash index steps down mechanically as they go ex-dividend and why the adjustment exists to put that step on neither side.